The average American knows very little about investing, and most say that they would never invest because of the risk involved. Yet, if someone has a 401K, a retirement account or a pension plan, the fact is that they are investors as these types of accounts invest money regularly. Therefore, it is beneficial for anyone to learn some basics about investing in order to better understand how their money is handled.
Investing Is Not Always Risky
Many people look at investments as nothing more than gambling as if they are betting on a company to succeed or fail. The fact is that investment often yields profits more often than losses. The key to profitable investment is to analyze each option and only invest if the chances of yielding a profit far outweigh the chance of losing money. It is true; however, that there are no guarantees that any investment will yield a profit.
Another key to earning money through investing is to choose more than one type of investment. This is known as diversifying. By choosing stocks, bonds, mutual funds and real estate, an investor has less risk of losing money than those who invest solely in one company. Stocks have a greater risk of loss, which is why most financial advisors suggest investing more money in other types of investment over stocks. However, this does not mean that if you invest in a stock, you will automatically lose money. When someone invests in stocks, they become a part owner in the company, which entitles them to certain benefits such as attending stockholder meetings and receiving payments or dividends from the stock as the company grows.
Mutual funds are a collection of stocks and bonds that are purchased by a pool of investors. Mutual funds are controlled by a professional manager such as those found at brokerage houses like JP Morgan wealth management. Mutual funds may include many different types of investment including governmental bonds, stock from secure companies like Coca-Cola and industrial bonds. They will include some bonds from smaller, lesser-known companies and corporate bonds as well.
Understanding the basics of investing may make it easier for someone to see how their investments are being handled and help prepare them for retirement. Because many retirement and pension plans invest funds, understanding how they operate allows the investor to better track how their retirement funds are growing.
Categories: Stock Market